If you have a cash shortage with your business, it is important to have a strategic plan to survive and reverse the shortage. If you don't have a plan in place, you could find yourself falling short on money for expenses like payroll. In order to prevent a cash flow shortage, you need to take action ahead of time. Here are a few steps you can take to prevent or survive a cash shortage flow. Keep in mind that over 80% of businesses fail due to a cash flow shortage crisis, so putting some of these tips in action may protect you in the long run!
Improve Profits by Changing the Business Plan
Take a close look at your expenses, operations, and business plan. Try to determine how the cash shortage occurred. Once you determine the culprit, you can then make the necessary adjustments. Likely, you will have to put a new plan in place. You can use the job costing method to take a good look at profit margins and P&L statements. Break it down into categories, such as marketing expenses, employee wages, and clients. This will assist you in potentially getting rid of clients that cost too much. It will also assist you in focusing on the areas of your business that are the most profitable. In addition, you will be better able to identify areas of waste.
Speed Up Receivables
It's simple, the faster you have money coming into your business, the quicker your cash shortage problem will go away. Accelerate your receivables. You can do this by accepting preorders, requesting partial payment upfront, sending out your billing faster, and catching up with past-due customers. Be sure to offer your clients a variety of payments options. You should be offering credit card payment, mobile payment, and electronic payment. Remember, every penny counts when you're dealing with a cash flowshortage crisis.
Reduce the amount of money flowing out of your business by negotiating payments owed to your vendors. This strategy will help improve your working capital. You'll be surprised at how many vendors will be flexible with you when they know things are tight. You can even negotiate with your utility providers.
If need be, borrow money. You can do this with a loan or via a credit card. Just be sure that you know the interest rate is the rate in order to avoid taking on extra debt.
Consider raising capital by selling some of the equity to a new business partner for your company. Just be careful of the type of partner that you decide to do this type of business with.
During a cash flow shortage, you will definitely have to cut your company's expenses. Only keep the expenses that keep you in operation. Take a good look at your expenses and get rid of any unnecessary ones. This strategy will improve your cash flow immediately.
Get Rid of Non-Essential Assets
You can get rid of non-essential assets by selling them off. While this is just a temporary fix, it will still improve cash flow for your business. This is a quick way to get cash.
When you have a cash flow shortage crisis in your business, you can't just stand by and watch the ship sink. You need to take immediate action or put a planned-out approach into effect.. Use the above strategies to keep your business afloat in difficult times.